Comments on: Looking for a Fed apologyhttp://blogs.reuters.com/felix-salmon/2010/01/06/looking-for-a-fed-apology/
A slice of lime in the sodaSun, 26 Oct 2014 19:05:02 +0000hourly1http://wordpress.org/?v=3.8.3By: csodakhttp://blogs.reuters.com/felix-salmon/2010/01/06/looking-for-a-fed-apology/comment-page-1/#comment-10873
Wed, 06 Jan 2010 17:27:53 +0000http://blogs.reuters.com/felix-salmon/2010/01/06/looking-for-a-fed-apology/#comment-10873Our country has yet to place into affect any measures whether it be policy, regulation or legislation that would prevent another systemic failure. We are passively burying our heads in the sand and saving incompetent industry leaders who made foolish decisions by PROVIDING them with more funds to speculate with the goal of making them solvent again. These institutions could not withstand the last onslaught of market discipline when they had hoards of cash, the next tidal wave will end their existence.

When an event occurs that was given 0 to infitesimal probability of occurence so as to not be reflected in financial analysts regression models or whatever failed statistical methodology used, there are but a few choices to protect ourselves from future narrowmindedness. I’ve listed two: One: institute fundamental measures that prevent the repeat of the outlier event so your model now reflects a new normal as best as you can foresee or Two: do nothing (as we are doing) but adjust your expected rate of returns by discounting the previously unknown risk that you are NOW aware of and which now has a higher probability of occurence(or as in the last meltdown, known but dismissed).

Our country has failed to do either which is now in evidence by: One) zero legislation and continued government support of incompetent financial managers and more sadly, our elected officials; Two) the level of stocks.

This can only mean that the frequency and severity of meltdowns will increase until we adapt.

As far as I can tell you’ve never once discussed Scott Sumner’s views on Fed policy, even though there’s a credible case to be made that he’s saying exactly what Bernanke would be saying if he were free from all PR and political constraints. He’s an interesting and prolific blogger who’s been recommended very highly by Tyler Cowen, and has been engaged in some very important debates with Arnold Kling, Brad DeLong, and Paul Krugman. He blogs at http://www.themoneyillusion.com/ , and you may find http://www.themoneyillusion.com/?p=3554 interesting on the subject of trills.

Reflection has led me to believe we had a perfectly adequate–if poorly constructed and seriously compromised–financial regulatory system in place leading up to the crisis. All it would have taken would have been for the regulators in place to have done their proper jobs, the Fed included. They did not.

At the end of the day, it is people who must do the work of regulating. We will always be vulnerable to ideologues, hacks, and lazy morons hijacking the regulatory system for ulterior motives, or even for reasons they do not fully understand. The same is true of the people populating the finance industry, our political system, and indeed society itself.